Remember when the lead time for a switchgear was around 26 weeks? Today, your wait for that switchgear is at least 50 to 60 weeks. Lead times are doubling, even tripling, for many equipment and construction materials used in test facilities. Supply chain issues can wreak havoc on timelines and budgets, especially if you aren’t addressing the long lead risks and mitigation options during planning stages.
Unfortunately, there are some blind spots when trying to identify where your supply chain risks lay in your plan. It’s not just a matter of material shortages. Here are four supply chain risks you need to consider:
1. It’s the labor shortage; not just a raw material shortage.
Even when manufacturers don’t have a raw material shortage, they may experience a worker shortage. We’ve seen instances where a supplier has to close factories or reduce operations because they don’t have the workforce to support them. Sometimes, the factory is hit with a double whammy of raw materials and worker shortages.
Subcontractors also face shortages of skilled workers. The vendor might deliver on schedule, but you may not have the team to complete the work when you want it. Matt Guise, project manager, explains, “It used to be once you put a schedule out and you put a contract out, those subcontractors met that schedule and hit their dates. Now, you’re at the mercy of the project in front of you and the project in front of that.”
Takeaway: When looking at vendors, don’t look only at the strength of their raw materials supply chain, but consider whether they’ve recently had to reduce their capacity. As for the subcontractors, you may have to plan on paying a premium to incentivize labor when you set your budget.
2. Even the ordinary stuff has longer lead times.
The lead time for switchgear may have doubled, but lead time for air handler units has tripled. According to Guise, “That happened to us. The timeline on the original air handler quote was 20 weeks, and now they’re quoted at 60 plus weeks. Common items you don’t think twice about ordering and expecting quickly, such as high tolerance piping, conduits, and masonry block, are taking longer than expected.”
Takeaway: Don’t make assumptions about lead times based on experience. Look at expected lead times for all materials as early as possible, when you have the most flexibility to mitigate any risk.
3. Vendors and subcontractors prioritize larger projects and contracts.
Where resources are scarce, competition for those resources increases. From the vendors’ perspective, it’s understandable that they’d shift what they have in stock to fill larger orders. A similar dynamic is playing out to reserve and hold skilled workers. Large infrastructure projects in southwestern states are paying incentives to recruit subcontractors and skilled tradespeople from Texas and California to offset local labor shortages.
Another factor to consider is whether you’re purchasing equipment and materials from the subcontractor, as well as the labor, or just labor. For example, you might decide to buy some common mechanical equipment before you have a mechanical subcontractor, to get ahead of any long lead time. Great—only now you have a labor-only contract to fill. That isn’t attractive for subcontractors when there are higher-value opportunities available that include providing equipment and labor.
Takeaway: Be realistic in your planning and where the project fits compared to others, and consider the impact of a specific risk mitigation option before moving forward with it.
4. Your decision-making process is too slow.
Internal decision-making can really slow a project down. If your company has a complex process that requires multiple reviews and approvals, you’re pushing out the ordering and delivery schedules. You’re also likely paying more. It’s not unusual today to see suppliers honoring a quote for only ten days. If it takes six weeks for your procurement team to respond, the quote is no longer valid and you have to start over. That product will not get any cheaper or come any faster with the next quote.
Takeaway: Are there areas in your company’s decision-making process you can streamline? Do local managers have authority to make some of these decisions? Revising the procurement process itself may be an opportunity to get a quick win with high impact.
Learn how ACS can help you plan for and navigate supply chain issues here.
